How to create competition on incufiber

Wednesday, at an NGA workshop ('High speed Europe ...') in Brussels, ECTA presented a WIK Consult report on FTTH. Based on case studies for 6 countries (DE, FR, ES, IT, PT, SE), they conclude that incumbents only can do FTTH, on a large and profitable scale.

The main points:

• Incumbents have both the infrastructure (available for re-use or closure) and the customer bases to make it possible in a profitable way (RoC = 10%), through a 30% cost advantage over altnets.
• Large-scale replication is not economically viable for altnets, outside very densely populated areas or in places like Paris (with its famous open access sewer system).
• The network must be open access, because all this implies that rolling out FTTH by incumbents bears the risk of re-monopolizing the telecom market. Duct access is not enough. Unbundled fiber (from Metro Core Locations) could allow for more altnets than unbundled copper. Sharing with altnets right from the start reduces the cost to incumbents.
• Access regulation has to change from 'how to provide access' to 'how to structure new network elements'. A form of 'fiber subloop unbundling' is only possible for point-to-point fiber.

The WIK press release (we haven't seen the report yet) raises a whole range of interesting questions:

• Does the report imply the obvious: we need just a single FTTH network?
• If full replication is not viable, the question remains: at which level do we need competition? (Take the poll in the right hand column!)
• How about cable competition: does that count as network replication? The 6 countries mentioned all have cablecos, but with diverging coverage. What happens once they start rolling out FTTH?
• Does the case still stand in a country like France, where altnets are cherry-picking high-density geographies?

This fits nicely with our 'incufiber' stance, which we were able to present in Rome earlier this month. We proposed structural separation as a way to maintain a proper level of competition. The advantages include:

• True equivalence between SPs.
  
• The ablity to attract (state) funding.
• Avoid more than one FTTH networks being built.
  

And there were more FTTH goodies:

• Viviane Reding (EC) proposed a 15% 'risk premium' for NGA builders in a speech that wasn't all too different from a previous one. So far, it's not clear what this means exactly. However, the message is clear: true infrastructure-based competition is favoured. Now, if the incumbents aren't supposed to re-monopolize the market (since only they have the scale for nationwide FTTH roll-out), there must be open access and true equivalence: all service providers (including SPs belonging to the incumbent) should have identical terms for accessing the network.
  
• Telecom Italia calls for increased NGN investments through PPPs. Partnering is the way to go.
  
• Vodafone considers entering the fiber game. It starts to look more and more as if Vodafone wants to be a full-service provider (integrating Arcor, bidding for Ghana Telecom, launching BB, etc.). Are they, sort of, going the Tele2 way (consolidating some markets, exiting others)?
  
• SFR targets 5m homes passed by 2012. It remains to be seen how France can reach nationwide coverage.
  

Roman Holiday: Incufiber to the People!

Off to Rome, for a presentation on incumbent FTTH, at an Economist conference. This is the reasoning:

1. FTTH: fiber to the people
2. Incufiber: now is the time
3. Structural separation: recommended
4. Case

Back on Thursday.

Incufiber: the case for structural separation

On Wednesday I will be in Rome for a keynote speech at a telecoms forum. I will be talking about FTTH, incumbents (can I trademark the term 'incufiber'?) and structural separation.

Digging into the subject, that Paul Budde down-under apparently has been researching also, I was reminded of the perennial complaint KPN has about regulation: there is no symmetry when it comes to regulating copper and coax. (OPTA, the Dutch NRA, defends this position, referring to its approach (market-by-market), but is looking into extended regulation of cablecos at the same time.)

There are plenty of arguments in favor of structural separation, and one of them is symmetry. How can competition ever by 'symmetrical' if there is no symmetry between the incumbent and its wholesale partners? Unless of course there is full structural separation. Go on, KPN, call for symmetry - as long as you realize that it will lead to structural separation of your own company.
(Assuming that the EC will not stear toward a US-style cable/telco duopoly and as long as full network replication is not deemed economically viable.)

Is usage growth outstripping available bandwidth?

Akamai just released its first quarterly 'State of the Internet' report (free registration). It focuses on security and connectivity issues, but also has some data on penetration and broadband.

Looking at the number of connections at high broadband speeds (> 5 Mb/s, page 13), the usual suspects top the list: South Korea (64%), Japan (48%), Hong Kong (35%), Sweden (29%). Two things stand out:

• Romania and Nepal in the top 10. I am not sure about the state of the internet in those countries, but perhaps it is a matter of 'double or nothing': you are either very well connected (probably a limited number of people), or not at all.
• There is a quarter-on-quarter drop in that number for several countries, including South Korea (-4.7%), Hong Kong (-9.8%) and Sweden (-9.0%). Perhaps this is a result of more people coming on line, and usage rising, whereas the network isn't upgraded at the same pace. Remember that no matter what the architecture or protocol is, fundamentally all networks (not just coax) use shared bandwidth.

Ben Broadband?

Apparently, T-Mobile NL is selling 140k cable modem subs to Ziggo, and is holding on to 460k ADSL-subs now that KPN is no longer interested.

Background: T-Mobile NL acquired Orange NL last year from France Telecom for EUR 1.33bn. The number of mobile operators was reduced to 3, and T-Mobile acquired the Orange NL broadband unit as well (at the time, it had 554k subs).
Originally, FT owned Casema, the Dutch MSO that recently merged into Zesko/Ziggo. It offered cable modem broadband service, but switched to LLU when FT sold off Casema.

I always assumed that T-Mobile would sell the whole unit, since it is a mobile-only operator (outside the areas where it is the incumbent operator). Some remarks:

• Why didn't Ziggo buy the entire base? DSL-subs within their territory could be migrated to their own platform, the rest could be sold on to Liberty Global's UPC unit.
• It think the regulator (NMa) might not have approved a sale to KPN.
• Was the price too high for existing players (such as Tele2, bbned) and potential market entrants (Belgacom, through Scarlet)? That would be very disappointing from a consumer point of view. Perhaps Tele2 and bbned (Telecom Italy) are planning a retreat from the Dutch market altogether, to make matters worse.
• T-Mobile will have to rebrand the remaining broadband unit. It was suggested before that it could be under the 'Ben Broadband' banner (Ben being the original brand of the T-Mobile network, abandonned upon the buy-out by DT, and recently relaunched as a low-cost sub-brand).

Solving the internet's problems

Three very diverse articles, with one communality: how to solve internet related trouble.

• Bob Lefsetz on Zappos and the relevance (to the music industry) of it's $1,000 bonus for employees who quit.
• Geoff Daily on the exaflood, the broadband incentive problem, 'field of dreams' and South Korea.
• A press release from Zeugma Systems for its new router "... giving broadband service providers (BSPs) a platform that is truly limitless in its potential to support new services." (...) "The future relevance and competitiveness of broadband providers is dependent on their ability to quickly develop and deploy new services—today's value creation and value add is largely in services, and not in the capacity and pipes to deliver such services. The ZSN is the first of a new breed of service delivery routers and could be a game changer."

Not so conventional wisdom in FTTH

The always excellent Benoit 'Fiberevoltion' Felten points us to a piece of market research from Dutch consultancy Stratix. Here are some additional points to make - very much the creeds of this blog.

Most interesting to me is to see how conventional wisdom can be contradicted: structural separation is good for business and investment; more than one FTTH network is feasible.

• FTTH is a community driven business. It takes a 40-50% take-up to get the business case working. (Wilson (NC) apparently only needs 30%, but I suppose that is exceptionally low.)
• Stratix refers to the problem of in-home wiring in Amsterdam's Citynet. However, my inside source tells me that it is a non-typical event related to a single MDU. Apparently, some hotshot architect decided that all meter cupboards should be located on the ground floor. Ducts going up to elevated appartments were not allowed in the stairwell, so installation required all your below neighbors to be home on the day the wiring was to be installed. This problem was intensified by the fact that many inhabitants are using their appartment as a pied-à-terre only.
• As I found out before, there is a lack of construction workers. This is probably the biggest limiting factor for quickly rolling out FTTH. At the same time, it implies that you need to start early if you don't want to fall behind in building a future-proof network.
• Three-layer model. In contrast with an earlier report, Stratix claims that KPN would not be a co-owner of the passive layer in Almere. Now, with the Reggefiber FttH joint-venture that will obviously change. In other words, Mr. Farwerck turns out to be right after all in that KPN will indeed co-own the passive layer. Anyway, checking with the KPN IR group it was confirmed that Reggefiber FttH will be open to other service providers, but the active layer will be a KPN monopoly.
• The entrance of real estate investors. FTTH enhances property values and is interesting to long-term investors. In addition, open access lowers the risk (as per Pensioenfonds Vervoer), since it reduces service provider default risk. Stratix contrasts these investors to private equity funds (high risk, no openness, restricted investments).
• My crucial belief is supported: "Both deals of ING and Rabo Bouwfonds demonstrate market led investment in structural(ly) separated networks. These deals counter the widely held beliefs in telecommunications policy papers that structural separation is bad for innovation."
• "Local loop economics indicates only one network per area to be feasible." This is an all too obvious statement, but let's do some basic math here. If you can make a business case at a c. 40% penetration, than there must be room for at least two networks, assuming that the entire population will sooner or later migrate to FTTH!
• Stratix expects a 'run-for-the-market'.

Mobile Broadband: a conceptual view

Last Friday I delivered a short presentation on the state of mobile broadband for Techlaw's annual Spring Conference. This time it was hosted by Houthoff Buruma in Amsterdam.

My top-down view went along these lines:

1. Mobile broadband in itself is a huge opportunity, as it expands on mobile's original proposotion (voice, mobility, personalized handsets).
2. At the same time, there are numerous threats - the same ones we know from the fixed-line world.
3. The industry has a broad choice of remedies, including 4G.
4. Recent signs (08Q1) are encouraging and I personally view LBS and social networking as 'killer apps' (in the consumer market).

KPN buys stake in Dutch FTTH pureplay Reggefiber

This new comes as hardly a surprise to my readers: Dick Wessels wants an exit from Reggefiber (albeit somewhat early) and KPN is hoovering up another competitor. The question remains: what will the NMa (the Dutch FTC) say about it, even if it is 'only' a minority stake (with a call option). Getting the takeover of Tiscali NL approved was not so easy, I believe.

A smart move by KPN.

• A truly future-proof network.
• Who needs two (or more) FTTH connections?
• Leap ahead of the cash-strapped cable industry (mainly UPC and Ziggo).
• Possibility for separation, in order to maximize the value and maybe even attract state funding for the passive network part.
• Hoovering up even more (munifiber) would effectively mean re-monopolization of the Dutch market. Another argument in favor of separation.

KPN: All-IP network not ready yet for large-scale FTTH

My source at a Dutch contractor tells me that KPN is preparing a large-scale FTTH roll-out. This could be new in so far that it is really large-scale, not just a town here and a business park there.
Originally, July 1 had been targeted, but the new All-IP backbone doesn't seem to be functioning as it should just yet. KPN doesn't want to go to market early, as it did with InternetPlusBellen (the ADSL/VoIP double play), which caused several tens of millions in 'damages'. Now, it is targeting January 1 2009 for the new FTTH program.
KPN is talking to a number of towns to get their cooperation. Not in any munifiber sense, but simply to get the paperwork (costly licenses for opening up sidewalks etc.) done more quickly and possibly at a lower rate.

I think KPN is timing the (rumoured) roll-out very well. It has been fibering up greenfields and business locations and it openly talked about the FTTH end game. The market must be prepared by now for more cash going into a future proof network.
Also, KPN can forgo VDSL investments, which are very distance dependent for proper service and would probably have a short life anyway. At the same time, FTTH will bring large opex savings (Verizon touts an 80% reduction for FiOS versus copper). Finally, the three-way cable merger of Casema, @Home/Kabelcom and Multikabel into Ziggo (formerly Zesko; owned by Cinven and Warburg Pincus) just launched. They seem to be pretty cash-strapped. In 2007 they had pro forma revenues of EUR 1,141m and an EBITDA of EUR 594m. Total debt is EUR 5.36bn and the interest expense was EUR 445m. The net result was negative EUR 265m. In other words, now is the time for KPN to leap forward.

To round off, Dick Wessels reportedly is eyeing a 7-year timeframe for expanding his Reggefiber empire (open access FTTH networks in several towns), before selling out.